Impound account, good idea?

[Dancing Fire]

my daughter said.. she should have open an impound account with her mortgage lender b/c when property tax and insurance are due it'll feel less painful on her wallet. I said...why would you want to let the bank use your money w/o paying you interest.. .. do banks pay interest on impound accounts? do they charge a fee?

 

[movie zombie]

the only time an impound account is good is if the individual isn't responsible enough to put the item on their calendar to make sure the taxes and insurance is paid. sorry to be so blunt but that is how I see it. setting aside some $ every month to cover taxes and insurance just like any other bill isn't that hard. in our case we have a separate savings account which covers house/car insurance, earthquake insurance, vehicle registration, etc. it is from this account that I pay those expenditures.

it is imo always better to control your own $ and make your own payments.

no, there is no interest paid on an impound account.

fee for an impound account? read the fine print of the loan.....it could be that it is built into fees at the front end of the loan. however, if she doesn't have an impound account there shouldn't have been a fee.

 

[amc80]

Some mortgages require you to have an impound account. I have one and I don't mind it. Yes, it would make more sense to invest that money and then pay it out myself, but it's one less thing to have to worry about. That is worth the small amount I may earn in interest doing it myself.

 

[TooPatient]

The mortgage company required an account that we pay into automatically. They calculated the amounts and added it to our minimum monthly payments. I would do it myself if they didn't have this requirement but it is what it is. The up side is that we are paying three bills at one time so we go through fewer checks and stamps! (always good to try to see the positive!)

We did get to choose our insurance company and policy. The mortgage company had minimum requirements to meet but otherwise the choice was ours.

 

[Hospatogi]

Nope! My DH and I are house hunting too and there doesn't seem to be a benefit to it really. Some types of loans require it but we have good credit and are putting 20% down payment so most lenders were willing to drop the requirement for us.

 

[movie zombie]

20% down does not require an impound account although some might prefer it.

20% equity in the loan [not value of the house but Loan] and one can ask to have both PMI and the impound account removed.

yes, w/o the 20% down one is required to pay PMI and have an impound account.

PMI generates more $ you owe at the time of purchase and increases your monthly payment. it is NOT tax deductible.

 

[VRBeauty]

As long as the interest rates on bank accounts are as low as they are now, the main downsides are that 1) you don't get into the setting aside money for these potentially large periodic bills, and 2) you don't get into the habit of paying those insurance and tax bills regularly. I had an escrow account with my home mortgage. I've never had a problem saving money so the first downside was not a problem for me. The second one bit me in the butt when I payed off my mortgage and forgot that the "automatic" property tax payments ended with the mortgage - but the resulting lesson was relatively painless, and I only had to learn it once!

 

[baby monster]

It's the psychological benefit of not writing a large check.

IMO escrow/impound accounts for property taxes are a total pain. It's better to have control than have third party administer it. One mortgage service company couldn't understand township's bills so we had to constantly call to straighten out mortgage bills. They would take the yearly property tax statement and treat it as quarterly bill resulting in huge mortgage shortfalls and insane penalties. Hours of my life wasted correcting their mistakes and wrestling for control over property tax account.

 

[Dancing Fire]

It's the psychological benefit of not writing a large check.

IMO escrow/impound accounts for property taxes are a total pain. It's better to have control than have third party administer it.

Yup!, I'd agree with you.

 

[luv2sparkle]

It's the psychological benefit of not writing a large check.

IMO escrow/impound accounts for property taxes are a total pain. It's better to have control than have third party administer it.

Yup!, I'd agree with you.

We haven't had one for the last two homes we have owned and we got out of an impound during our mortgage for the previous one. The bank was requiring an amount for our escrow that was $600 more than the annual cost of taxes and insurance. We had a heck of a time getting the bank to release the overage. That was the end of that. I like the control of knowing that those things are paid by us. We put money in savings every month as if it were a bill. When the bills come due we just pay it. Easy peasy.

 

[Maria D]

An FYI from a Google search:

"Certain states, though, do require interest to be paid on escrow accounts. According to the Mortgage Bankers Association, these 14 states are California, Connecticut, Iowa, Maine, Maryland, Massachussetts, Minnesota, New Hampshire, New York, Oregon, Rhode Island, Utah, Vermont and Wisconsin."

 

[diamondringlover]

Ok I am clueless what the heck is an impound account?

 

[MustangGal]

I have one, mostly so I don't have to bother keeping track of it. But my taxes and insurance aren't high (less than 2k per year total), I doubt I'd get enough interest off that amount these days to make it worth it.

 

[VRBeauty]

An impound account is money your mortgage company holds for you and then uses to pay property taxes and homeowners (fire) insurance on your behalf. These costs are averaged for your number of mortgage payments and added to each payment so you only pay a single bill. Once a year the mortgage holder will send an account summary and adjust the amount added to your mortgage, if necessary. In my case the escrow account did earn interest, so I was also sent an interest statement to use for my income tax calculations. Generally impound accounts are required when mortgage insurance is required, i.e. when the loan exceeds 80% of the property value.

 

[Roxy]

An impound account is money your mortgage company holds for you and then uses to pay property taxes and homeowners (fire) insurance on your behalf. These costs are averaged for your number of mortgage payments and added to each payment so you only pay a single bill. Once a year the mortgage holder will send an account summary and adjust the amount added to your mortgage, if necessary. In my case the escrow account did earn interest, so I was also sent an interest statement to use for my income tax calculations. Generally impound accounts are required when mortgage insurance is required, i.e. when the loan exceeds 80% of the property value.

Our escrow account earns interest as well but only property taxes are paid out so I never really put too much thought into it. We don't have PMI because we put 25% down, but we were naive and didn't know there was an option of putting anything less than 20% down.

I hate to admit it, but we'd never even heard of PMI until a few years ago at a dinner party w/ some friends who were complaining about having the additional payments and trying to figure out when they'd no longer have to pay them at some point. We were just excited to be counting down the years to when we'd finish paying our mortgage since we'd opted for a 15 year mortgage (although it looks like we'll be moving soon and we only have 5 years to go ).